THE European Central Bank said professional forecasters have slashed their projections for eurozone growth this year and now expect the area's economy to contract.

Forecasters predict gross domestic product will decline 0.1pc in 2012, the Frankfurt-based ECB said in its monthly bulletin. The economy will expand 1.1pc in 2013, less than the 1.6pc forecast in November, the survey also showed.

Eurozone GDP declined 0.3pc in the fourth quarter of 2011, the European statistics office in Luxembourg said this week. That was less than the 0.4pc drop forecast by economists as better-than-predicted performances in Germany and France helped mitigate the region's first contraction since 2009.

Bank of America Merrill Lynch and Goldman Sachs warned yesterday that the resilience of the European economies is masking a north-south divide.

Stress

"To an extent, the economies in the north and south of the euro area are decoupling due to varying degrees of financial stress," said Laurence Boone, chief European economist at BofA Merrill Lynch in London.

The disparities complicate the ECB's task in setting a uniform monetary policy for 17 nations.

"How you set monetary policy for a bunch of countries heading in opposite directions is going to become quite a challenge for the ECB," said James Nixon, co-chief European economist at Societe Generale in London.

Using the so-called Taylor Rule, a measure of where rates should be set given inflation and growth projections, Deutsche Bank economist Gilles Moec estimates Spain needs a central bank interest rate of about zero, compared with about 2.5pc for Germany. (Additional reporting Bloomberg and Reuters)